Based on a be aware from Financial institution of America, their proprietary World Fairness Threat-Love indicator simply surged to the ninety fifth percentile final week.
It is an indicator that indicator tracks a basket of sentiment drivers together with positioning, put-call ratios, investor surveys, value technicals, volatility, spreads, and correlation measures.
Proper now, the studying is screaming “Euphoria.”
As you may see within the chart above , we are actually effectively above the pink dotted line that sometimes denotes a contrarian bearish sign.
BofA writes:
“Buoyancy is now evident throughout almost each main class – volatility, correlations, spreads, money allocations, investor surveys, put-call ratios, and technicals.”
When sentiment will get this stretched, markets typically must take a breather. BoA notes that this elevated studying alerts markets could also be heading right into a interval of consolidation or a gentle correction as merchants digest this euphoric positioning. Nonetheless, the strategists at BoA provide a actuality examine. Whereas sentiment is frothy, the precise mechanics of the market stay robust. They don’t see this as the top of the bull run.
Why? As a result of apart from the “vibe” (sentiment), the onerous information remains to be supportive:
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Earnings momentum is holding up.
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We’re in an ongoing progress upcycle
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Coverage settings stay accommodative
A separate be aware reveals that traders are holding one of many lowest proportions of money in fashionable historical past. The current BofA world fund supervisor survey confirmed that “money ranges of three.7% or decrease has occurred 20 occasions since 2002, & every time shares fell and Treasuries outperformed within the following 1-3 months:”
These are some large pink flags however general I are inclined to agree with Financial institution of America that shares can proceed to rise. If you take a look at one thing just like the Worry and Greed Index, it isn’t elevated
One other favourite of mine is the AAII investor sentiment survey and it reveals that 44.4% of traders are bullish, which is off the excessive of 49.5% from a couple of weeks in the past. That is nonetheless above the historic common of 37.5% but it surely’s not at ‘euphoric’ ranges by any stretch.
S&P 500 futures are up 0.2% at this time.
